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Many analysts and market participants are assessing the U.S. president-elect's declarations through the prism of 'Take Trump seriously, not literally.' Maintaining this perspective is particularly important, especially in moments such as November 25th, when President-elect Trump stated that he would impose a 25% tariff on imports from Canada and Mexico until they clamped down on drugs, particularly fentanyl, and migrants crossing the border.

For context, Canada is the U.S.'s leading trade partner, exporting approximately 78% of goods to the U.S. while importing almost 50%. Canadian exports to the United States totaled $592.7 billion in 2023.

USMCA Under Threat: Trump's Tariff Plans Signal Intent

While President-elect Trump's public declarations about tariffs are not uncommon, imposing new tariffs would violate the terms of the U.S.-Mexico-Canada Agreement (USMCA) on trade. The deal, which Trump signed into law in 2020, continues the free-trade agreement between the countries. As such, the hypothesis for these recent threats may be the scheduled 2026 review of USMCA.

As noted in a memo released by law firm White & Case, potential U.S. interests in this renegotiation could include new cooperation mechanisms for supply chain disruptions, expanded anti-forced labor import provisions, new measures to block Chinese companies from the North American market jointly, measures to promote critical minerals development and investment protection, incentives for near-shoring,  and new border management practices.

With President-elect Trump indicating the measures he is willing to take, it's a strong indication that his 'America First' agenda is not purely political posturing but messaging with intention about what he intends to do if needed. 

Canada's Energy Role: A Critical Ally to U.S. Growth

A recent memo by the National Bank of Canada Financial Markets provided a perspective on an area where Canada can – and has been – an economic ally to the U.S.: Energy. As stated in the memo, since 2019, for the first time in over 70 years, the U.S. has become a net exporter of natural gas, crude oil, and petroleum products. This achievement reduces the U.S. economy's vulnerability to disruptions caused by tensions in the Middle East. It is crucial for the President-elect to build on this strategic advantage. As noted by Statistics Canada, the share of energy products, which represented 34.2% of total exports to the United States in 2022, fell to 27.9% in 2023 on a customs basis.

Canada plays a crucial role as the most trusted energy supplier to the U.S., a partnership of growing significance amid electricity constraints hampering the new economy's expansion. For instance, research firm Gartner recently estimated that 40% of planned U.S. data centers may not be built due to these constraints, with the challenge expected to escalate by 2027–2028. Recognizing this, the American private sector increasingly views Canada as a dependable and valuable source of electricity.

ETFs to Watch: Fueling U.S. Industry and Canadian Energy

Given the theme of American industrialization and Canadian energy, ETFs such as First Trust AlphaDEX™ U.S. Industrials Sector Index ETF (Ticker: FHG/FHG.F), Global X Pipelines & Energy Services Index ETF (Ticker: PPLN), and BMO Equal Weight Oil & Gas Index ETF (Ticker: ZEO) are worth considering for Canadian investors.

FHG seeks to replicate the performance of the StrataQuant® Industrials Index by applying the AlphaDEX methodology to the Russell 1000 index. The AlphaDEX methodology is an investment process that seeks to produce similar correlation and risk characteristics as broad market indexes while seeking outperformance due to stock selection and weighting.

PPLN seeks to replicate the performance of the Solactive Pipelines & Energy Services Index, which is designed to provide exposure to equity securities of certain Canadian oil and gas companies in the Midstream Sector.

ZEO has been designed to replicate the performance of the Solactive Equal Weight Canada Oil & Gas index, which includes securities in the oil & gas industries. Constituents are subject to minimum market capitalization and liquidity screens and are allocated an equal weight rather than a market capitalization weight.

Takeaway

The presidency of Donald Trump has made it clear that his rhetoric should be taken seriously; as such, it is prudent for investors to understand the literal implications of his actions and how they can shape the economic landscape as we advance into his second presidential term.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.